Foundations That Act Like Individuals: Family Foundations Explored

In much of the world of philanthropists, a family that has set up a family foundation communicates that someone has “made it.” It conveys a sense of status, and expresses a commitment to social responsibility. A family foundation says that income or wealth has been dedicated to a higher purpose; that a family has a vision for the community and a commitment to providing resources, by mandate, to those areas that are most important to them.

And to many in the nonprofit world, it can be the best of both worlds. Families that have established family foundations are called upon to connect to causes and challenges with the empathy and humanity of an individual but fund it with the strength and determination of an institution. Family foundations have become popular vehicles for determining and achieving philanthropic goals. And despite this, many family foundations are still “hiding in plain sight.”

Often, when nonprofits are looking to advance or fund a new program, they look to public, private and government foundations for support. Family foundations now make up about half of all registered foundations in the United States and account for 44% of all foundation assets. These represent a remarkable piece of the philanthropic landscape. However, since family foundations tend to be more private, many nonprofits exclude them from their mix of support.

The Council on Foundations defines a family foundation as one whose funds are derived from members of a single family. At least one family member must serve as an officer or board member of the foundation, and as the donor.

In recent years, the number of family foundations has grown at an unprecedented rate. In fact, nearly 70 percent of family foundations were created after 1990, which means that most family foundations are barely one generation old. According to the Foundation Center, in 2015 there were 42,008 family foundations in the US which had a combined total giving of $25.9 billion. This is up from up from about 3,200 family foundations distributing $6.8 billion in 2001.

These philanthropic vehicles are increasingly attractive as a means of enabling families to capitalize on tax breaks while remaining in control of where their contributions go. There are fewer restrictions to giving than with a donor advised fund, yet with more obligation to give a percentage of assets.

Family foundations offer the unique opportunity for families to work together to support a common cause and offer parents and grandparents a way to instill a sense of philanthropy in the next generations. The family foundation model is one that helps older generations to teach and emerging generations to learn about compassion, community, civic responsibility, and giving.

Most family foundations are not very large, especially when compared to community or private foundations. In fact, according to The Foundation Center, sixty percent of family foundations have assets of less than $1 million. And, by law, they must give away 5% of average monthly assets each year, or face a 30 percent excise tax on whatever portion of it has not been distributed within a year.

Unique Characteristics:

Family Control: A family foundation is just that - a foundation run by a family. This means that there might be conflicting interests or internal issues that might not be apparent to an outsider. However, it also means that giving priorities may shift based on a family member’s personal preferences.

We just learned of a significant organization in a major community where a family foundation was in the midst of paying out a seven figure commitment when the patriarch of the family who made the commitment passed away. When the next generation of family/foundation leadership stepped in they demanded access to the organization’s financial statements and made significant demands, including the retirement of the long-time CEO, a condition for paying the sizeable balance, which would have created considerable upheaval. While the situation was resolved – by another family foundation stepping in and paying the balance – it shows the delicate nature of family control and generational transition.

Age: Most family foundation boards are composed of first and second generation family members. During the next four years, 43 percent of family foundations expect to add to or increase the number of younger-generation family members on their boards, according to the Foundation Center 2015 survey. Adding younger board members will impact the funding, the structure, and the world view of many of these family foundations.

Traditionally place-based: Though many family foundations give to nonprofits in a specific geographic area, this is changing with the addition younger board members. According to the 2015 Trends study conducted by The National Center for Family Philanthropy, 80% of family foundations created before 1970 focus giving on geography. However, newer family foundations are now moving to be more issues based (55%), following the general trend of the generational transition in the charitable arena.

Less accessible: Most family foundations do not have websites and do not share their giving priorities with the public. In addition, 77% do not accept unsolicited applications. Connecting with a board member directly, like with an individual donor, is usually the singular path available.

Board is very “part-time”: Family foundation boards are most often comprised of family members. Therefore, philanthropy is probably only a small part of the board member’s busy lifestyle. It is important to remember that these boards may only meet a few times during the year, usually at family events. Nonprofits need to be mindful of board members’ time and convenience when setting meetings or scheduling phone calls.

Best Approaches:

Connect to the Individual’s Passion: Due to the fact that most family foundations do not accept unsolicited applications, it is critical to connect with individuals on the board. Roughly 85% of family foundations allow individual board members to recommend discretionary grants for foundation funds. If a board member understands and connects to a project, there is a good chance that it can get funded.

Bottom line, you need to make the case directly, like you would with the approach and cultivation of an individual donor prospect.

Relationship Building: Unlike many foundations, 83% of family foundations (according to the 2015 Trends Study) make general operating grants to support organizations. Family foundations often understand the value of funding an organization’s “core business” and building long-term relationships with their partners. Sending an unsolicited proposal without any connections will rarely get funded, and likely will not be read.

Focused and Appropriate Communication: Family foundations are indeed grant making vehicles; however, they act more like individuals. Communications should be targeted and focused, and should follow the directions and preferences of the foundation, as if sending information to a prospective individual donor. General outreach and mass emails will not be as effective as a more specific approach tailored to giving priorities and the mission of the family foundation.

Specific Requests: According to a Foundation Source study, 54% of family foundations felt negatively towards applicants who delivered a generic proposal. That same study found that 66% of family foundations said that they prefer when applicants propose one specific project, rather than several different ones. The goal is to know the funding priorities and to match the project request to each family foundation’s mission.

Show Results: As younger family members become more involved in their family foundations, the demand to show results, and the impact of those results, has been increasing. There has been a new trend to require grantees to demonstrate the outcomes of the grant and to show transparency and accountability. According to the 2015 Trends Survey, 57% of family foundations now require formal evaluations as part of the grant process.

The path to building a relationship with a family foundation might be harder at first, without the help of websites, online applications or easy accessibility to board members. However, keeping in mind the benefits of working with family foundations, they will be well worth the effort.

Building committed partnerships with interested funders like a family foundation is critical to any nonprofit’s financial health. Knowing the family’s priorities and connecting to the mission of a nonprofit is a simple and direct way to build lasting relationships of support. Relationships with family foundations can not only be rewarding but also inspiring and become an integral part of a nonprofit’s base of support.

Avrum Lapin is President at The Lapin Group, LLC, based in Jenkintown, Pennsylvania, a prominent full-service fundraising and management consulting firm for nonprofits. The Lapin Group inspires and leads US-based and international nonprofits seeking fund, organizational, leadership, and business development solutions, offering contemporary and leading-edge approaches and strategies. A Board member of the Giving Institute and a member of the Editorial Review Board of Giving USA, Avrum is a frequent contributor to eJewishphilanthropy.com and speaker in the US and in Israel on opportunities and challenges in today’s nonprofit marketplace.